Here we go again…

“Do you want HMRC to be able to take money directly from your bank account?” Well that’s not exactly rocket science, is it? If you put it that way, the answer is always going to be no, right?

So how about this?

“Do you want HMRC to be able to take money directly from the bank accounts of tax avoiders who are refusing to pay up?” That’s a bit harder but I’m guessing most of us would be on the side of the angels and would answer yes? Because tax is the price we pay for civilisation and it’s a bit much to take advantage of the stuff that’s paid for out of taxes – hospitals, schools, roads, the fire brigade, pensions… – and then rat out on paying your share.

Hmmm… so here we go again with a consultation that produces instant headlines: shock horror! the taxman is coming for your bank account! Even if it’s a joint account! but with enough “no, but seriously” issues that the actual debate gets lost in a welter of petitions and op ed pieces. (Like, yes, this one, all right.)

So let’s look at the actual consultation and what’s really being proposed (rather than the tabloid shock horror version of what people imagine it might say) and then compare that with a couple of real life situations that we might actually know something about, then, shall we?

Here’s the consultation: published on 6th May, closes on 29 July, so there’s plenty of time for people actually to read it and reply to it. And it’s not proposed to bring any changes into force until at least late next year, if I’m reading it correctly (there’s this consultation on the design, then there will be draft legislation for comment over the autumn/winter, and then the legislation would be in the 2015 Finance Bill so it’s unlikely to come into force till some time after that). And what else have we noticed is happening in 2015? That’s right, an election on 7th May 2015. So it’s possible that the coalition could pass a Finance Act and then a Putative New Government could produce an Emergency Budget in, say, June (it’s not unprecedented) and repeal the lot anyway.

First of all, I see on the first page there’s a reminder that HMRC consulted on a very similar vein, about direct “attachment of assets”, in 2007. I hope we all have our buzzword bingo cards ready for when the politicians are interviewed about this and it all turns out to have been Labour’s fault. Oh, and I wouldn’t have drawn attention to a consultation where the responses included, at A6.2: (my emphases)

The most commonly raised concern was that HMRC would have insufficient safeguards for this to be implemented appropriately and that it could create hardship. The level of HMRC error was a major point that would need to be addressed before any such scheme could be implemented. There was doubt over current customer service levels and that HMRC would be unable to support the system if it were introduced. A6.3. A small number suggested that this would be a draconian measure and that HMRC should not be given these powers under any circumstances.

Has anything changed in the meantime? I simply offer it up as a money-saving suggestion to organisations which replied to the first consultation – dust off your responses and send them again!

There is a foreword from David Gaulk simply studded with “nudge unit” language designed to normalise the idea – it will “modernise” the system, other countries already do it, it’ll level the playing field, it is “targeted” at a “core” of non-compliant people. We are being nudged to answer the second of the questions I posed at the start of this article, rather than the first. We are good people who will never be affected by this change. They are bad people who are deliberately ripping the rest of us off. If you are innocent you have nothing to fear…?

Well all right. If HMRC is serious, here’s an idea:

2.12 HMRC estimates that:  DRD [“Direct Recovery of Debts”] will apply to around 17,000 cases a year;  the debtors affected by this policy have an average of £5,800 in tax and tax credit debts; and  around half of the debtors affected by this policy have more than £20,000 in their bank and building society accounts and ISAs.

Let’s limit the power, so that HMRC can apply DRD to no more than 17,000 cases a year. I would suggest also limiting it to people with debts greater than £5,000 and assets greater than £20,000 but it would be too easy for evaders to game the system that way (by never paying the last £4000 of tax debt and always keeping less than £19,999 in the bank) But the “no more than 17,000 cases” rule is a good one, I think. Firstly, it would stop mission creep, where this year it’s just the people with large and deliberate debts and next year it’s anyone with a debt older than six months and the year after that, it’s routine for everyone. A cap on the number of times HMRC could use the power would force them to prioritise where the power was to be used and make them concentrate on the cases they asked for the power to deal with, rather than using it to settle cases that start to feel vexatious to them.

Here’s an example. Last year HMRC wrote to me out of the blue asking me to repay an allegedly overpaid tax credit debt. I argued with them over the phone on several occasions that first of all they were time-barred from collecting a ten year old alleged debt when they hadn’t mentioned it to me in the meantime (including years when I had actually been working for them!) and secondly I didn’t accept there had ever been an overpaid tax credit. They kept telling me I had to ring the tax credits people and sort it out with them, and I kept saying I didn’t accept there was any collectable debt so the onus was on them to prove there was something for the debt management people to collect.

In the end they tried to collect the alleged debt via a PAYE coding amendment (rather than via some method that I could appeal against or defend in court) so I went the formal complaint route. They grudgingly backed off and agreed the amount wouldn’t be collected, and then tried to amend the PAYE code to collect it anyway, and had to pay me £25 compensation after I had to make a second formal complaint.

Under DRD, wouldn’t they simply have taken the money out of my bank account? My point is that HMRC’s view of who is “refusing to pay what they owe” may not match up to the views of the rest of us.

Here’s another thought:

3.3 Examples of the types of debt that will be covered by DRD include, but are not limited to:  tax debt owed by individuals (for examples, income tax or VAT owed by taxpayers in self-assessment);  tax credit debt owed by individuals who have received overpayments of tax credits (for example, Child Tax Credit or Working Tax Credit) and need to repay them to the Government; and  taxes owed by businesses and partnerships (for example, unpaid corporation tax and Pay As You Earn (PAYE) tax).

Why not have a three year trial of the policy, where you concentrate solely on the third of these categories? In other words, apply the policy only to companies and LLPs and basically anyone except “natural persons”, individuals. If it works on the big boys, then come back and ask how we feel about extending it to individuals?

At the risk of making this post severely “tl:dr” I was a bit gobsmacked when I got to the first consultation question, on page 13 of the document, which was:

Question 1: Is 12 months’ worth of account information appropriate for HMRC to establish how much the debtor needs to pay upcoming regular expenses?

In other words, we aren’t going to ask you about the criteria to be applied to the policy design or to the possible solutions to the policy issue we have identified, but, please, tell us whether we can ask your bank for twelve months of your bank statements or we should have more? Seriously??? Question 2 is, can the banks provide this information to HMRC within five days, and question three, can you live on the £5,000 we’re proposing we should have to leave in your account! This is a consultation supposedly run in accordance with the government’s consultation principles which still include (I checked) a commitment that

Engagement should begin early in policy development when the policy is still under consideration and views can genuinely be taken into account.

Why, then, are we getting a fully developed policy “solution” foisted on us and a consultation document which tinkers around at the edges and margins, and not a robust consultation on the actual policy issue which is, how can HMRC get more money in from debtors without oppressing inoffensive taxpayers.

Here’s another example. I wrote an article for Taxation magazine in April of last year about some problems that were occurring in construction industry penalties. Because there are £100 penalties applied to contractors in the construction industry who don’t put their monthly subcontractor returns in on time. And a problem was arising because HMRC no longer considers a taxpayer wholistically but has an industrialised system where you deal with different departments for different matters. So there was no “help the bewildered” service that could turn up on a contractor’s doorstep in month 2 and say “you owe us £100 for not sending your forms in last month. Do you need me to show you how to do them?” Instead, the £100 debt was too small to bother with, the taxpayers affected were the kind of people so petrified of brown envelopes they weren’t opening them, and it wasn’t until the debt was in the tens of thousands – and wholly disproportionate in terms of the person’s trade – before anyone from debt management was turning up on their doorstep, at which point they were, well, screwed. As Liz Bridge of the Federation of Master Builders said:

How can it be just to seek penalties in thousands of pounds from firms that do not make much more than a living wage for their owners? Penalties should make informed people cautious and compliant, not make ordinary men with limited resources bankrupt.

Would it assist people in those circumstances to find their working capital vanishes from their bank account and they have five grand left to see them through to the bankruptcy court?

And finally, the usual question. What does it say in the equalities impact assessment?

HMRC does not hold data which indicates impacts on any protected group.

How many times? That isn’t the question!

(Oh, and one last thought:)

(Mischievously) At least when HMRC flog our data to the credit reference agencies they’ll get more for them when they include bank details!

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Or, to make sure that there is proper oversight and safeguarding, why not simply set up a system whereby if HMRC consider that they are owed money they can apply to a court for an appropriate order to enforce payment?

We could copy it from the one that currently exists in the UK… oh, wait.

[…] money directly from the bank accounts of people in mental distress or illness, are they? We have been here before when HMRC thought they would only be using the power around 17,000 times a year and I suggested, […]